Can I cancel my letting agents contract and keep my good tenant?

Mark Trenfield says:

HI Sophie,
This is a great question and worthy of a blog in it’s own right to cover all the different aspects of your question and different answers and views ……

The usual answer to this question (Sorry Mark A) is “check your agencies contract” …. but I think this goes deeper than the legal clauses in the agency contract (that may or may not stand up in Court as they probably would breach your Human Rights if they were too restrictive anyway) as there is a moral question, a practical question and there is also reality and fairness!

Legally; the clauses in the letting agency contract will determine how termination between landlord and agent should be conducted. If you try and take your tenant away from the agent, without just cause (ie: you simply want to save yourself the agency fees) then they will threaten legal action …… I’ve even known landlords invent “just cause” to try and get out of their legal obligations …..

Morally; you were very happy to use the agent when your property was empty (earning no rent) .. and the agent seems to have done a good job in finding you the “model tenant” … so is it morally right to deliberately breach contract with the agent. I don’t think it is morally right – but that hasn’t stopped my customers doing this very thing to me (and my business) in the past.

Practically; It’s your property and you can do what you want with it and, ultimately, the Letting Agent will have to do as you say! BUT if you try and “dump the agent” then you need to make sure you don’t, accidentally, “dump the tenant” as well. The tenant might be happy dealing with the agent who is probably holding the tenant’s deposit money – they might be nervous dealing with the landlord direct.

Reality; The Letting Agent is unlikely to sue you for breach of contract (as the worth of that contract is small – ie: a few hundred pounds a year in lost management fees) irrespective of what the legal contract says. Life is too short to fight morally corrupt landlords over a minimal fee – it is a business distraction. You can’t please all the people … all the time ….

Fairness; The Letting Agent does a good job and finds you a good tenant and charges you the fees that you agreed at the start of the contract and is providing you with the letting service(s) that you asked them to provide.

So … is it FAIR …. to take control of the tenancy thereby cutting out the letting agent’s fee … just to save a few hundred pounds in fees ……. I think most, reasonable people, would consider that to be UNFAIR …….. but then again …… not all Landlords are reasonable people.

Finally; Good Letting Agents are as rare as “hens teeth” ….. and if you’ve found a good one … you should hang onto them …… I don’t think it matters what the legal contracts say …. I think it is about upholding the excellent partnership that has been created, in this case, between landlord and agent.

Can you dump the agent? – almost certainly YES ….
Should you dump the agent? emphatically – NO …..

Mark Alexander says:

Agreed that Human Rights don’t come into this. Unfair contracts do though and possibly restrictive trade practices too. Until Sophie answers the questions raised towards the end of the article and explained in more detail why she wants to terminate it’s probably wrong of us to make assumptions as to who might be right or wrong in this instance. I don’t think it’s right to say whether agents will or will not choose to litigate, that’s a commercial decision that each letting agent will take on a case by case basis – there is no one size fits all approach. I tend to agree with @MarkTrenfield though that most agents will not litigate for the sake of a few hundred pounds as it’s often more trouble than it’s worth and even a win can result in negative publicity which can cause more damage to reputation than the amount of funds recovered.

Paul Barrett says:

Surely the only honourable thing to do is comply with any terms of any agreement that you have willingly entered into.
You would expect a tenant to comply with their AST conditions.
Why should a LL think they can terminate a contract without penalty!!
Only in the case of absolute incompetence, etc from a LA would you be justified in breaking a contract.
You would presumably then sue the LA for breach of contract in failing to deliver the services that you pay fees for.
So you should just grin and bear it and wait for the earliest notice period and then conclude your contract with the LA.

Ag says:

Sophie in future I think you should use a Letting Agent but make it clear you would just like them to find a tenant and you will manage the property. I do this with all my property’s, as long as you agree the fee’s and you are happy with their service. I know first hand why you want away from the agent because I had it when new to the game, for 5 years I paid £400+ every 6 months to get a tenants agreement signed. What a waste of money! And before any one says they will have done more than that…..really they didn’t and when the penny’s are tight that is most of your profit!

Mike Barnes says:

Lettings agents are not just charging for what they have done, they are also charging for what they might have to do.
How do you feel about getting a call about a problem at 8:00 Christmas eve when you have had a couple of drinks so cannot drive yourself to sort out problems? It’s happened to me!
I manage my own lettings, including tenant selection, because the cost of using a letting agent would have consumed my profit margin when I started and interest rates were much higher than now.
If i could find someone to field the emergencies for a reasonable fee, then I would go for it, just to ensure I keep my holidays for the family, but the rest of it has become much easier over the years, so not worth paying for someone else to do the work.

Mark says:

But you knew the charges at the onset of the contract. Honestly I’d be wary of getting a bad reputation. It’s much easier to lose a good rep than a bad rep!

joe bloggs says:

‘then you need to pay whatever exit penalties are due’subject to the unfair contracts terms act 1977 and ‘penalties’ are not enforceable in english law!

Mark Alexander says:

Hi Sophie, we have just spoken on the telephone. As I explained, UK tax law is complicated and you should seriously consider employing an accountant, preferably one who is a landlord themselves as they will have researched deeper into property taxation. Look for a small business but one that a qualified chartered/certified accountant. I wouldn’t expect you to pay more than a few hundred pounds a year as you only have the one property.

I don’t think using a letting agent is a bad thing either, especially as you are new to the UK and you have not been a landlord for long either. I used letting agents for many years when I first started out. If you want to find a good one then find out where your nearest landlords association is, go along to a meeting and ask other members. That’s how I’ve found most of my best contacts over the years.

I’ve learned a lot for myself too but that’s as a result of making some pretty stupid and very costly mistakes. You don’t need to make the same mistakes as I did. Just keep reading this website and start networking. If you end up paying too much for good advice that’s still a lot less expensive than making a big mistake I’ve found. as you get more and more useful contacts you will soon get to know whether you are paying too much or not.

Wishing you well.

Mark

Victor says:

Sophie has the same problem as most of us The agent gets 10% for collecting our money and a further fee for renewal and a further fee for holding the deposit All plus VAT No wonder the smaller landlord finds it hard to make a profit Cut out the middle man sounds a good idea but unfortunately we need them

Mark Alexander says:

Now this is an interesting twist – you are an agent and you are saying that anybody can manage their own properties and save money. I am a landlord and so it would seem is Victor and we are disagreeing with you LOL !!!

The Inland Revenue would have us believe that tax needn’t be taxing but I think most of us would disagree with that statement.

If you been in the lettings business for a long time then the rules appear to be common sense and logic. However, for a newbie who doesn’t even recognise that rules exist lettings can be a minefield. Interestingly, I started off by using a letting agent and when my brother and I retire fully we will go back to using one too. I think there’s a point at which all landlords start to feel a bit more confident with self management, usually after a few years or when they have built a small portfolio and built a network around themselves and picked up some knowledge. Arguably, the transition stage is the most dangerous, it certainly was for me.

I guess what I’m saying here is that it’s “horses for courses”.

Of course picking the right agent can also be a minefield, my starting point would be to look at SAFEagent members and then to talk to professional landlords about the services they provide. Too many people judge on headline price rather than on experience. Savings in fees to letting agents can easily end up costing a lot more with void periods, tenant churn, bad tenants and mistakes being made in terms of not following regulations.

Paul says:

Hi Sophie – I agree with Mark on getting a bad reputation, however the introduction fee is there for a reason it doesnt mean you will get a bad reputation by leaving the agent and keeping the tenant. Alot of it (financially) depends on how much your rent is too because if you pay £400 finders fee that could be alot cheaper than 10% if your rent is say £900 a month. However, if it is in the region of £450 a month rent then you need to weigh up the pros and cons. I do both on my properties, depending on the rental income and the location. I use the agent to find tenants as well as to find and manage. Whereabouts in England is your property ?? I maybe able to assist with agents and/or good accountant if that is the way you want to go.

Kersten says:

In principle the tax position is not all that difficult – although I am a tax adviser and property investor myself. That said, as most people do not fill in a tax return (tax is taken out of their monthly salary by PAYE), first time property investors have to start filling in a tax return setting out ALL OF THEIR INCOME.

And this can be daunting!

In addition, HM Revenue & Customs don’t always get it right and it then takes an accountant/tax adviser to sort it out.

The benefit of using a tax adviser is that they will also be able to help you with claiming the appropriate tax deductions, eg for repairs & maintenance, landlord costs, renewals etc. My advice would be to keep good records as you don’t want to pay them to sort through a shoe box of receipts.

Kersten

Kevyn says:

As Mark says it all depends on the wording of the contract you have with the agent. All landlords must read the wording carefully before they sign (the devil is in the detail) and not accept it if there is anything they do not understand or agree with.

Landlords should remember that contracts with the agents are negotiable. For example we use agents for finding tenants only. They normally have a renewal fee clause in their contract so that if the tenant renews the contract, the agents get an extra fee for nothing. We say that we will not accept this clause and they normally agree to remove it rather than lose our business.

I don’t think that unfair contract terms legislation applies to a landlord / agent agreement as this is a business contract and landlords are expected to know what they are doing.

PeterH says:

You dont need third party fire and Theft to drive your car on the motorway but you do need it when you have and accident or are picked up for speeding… same for and agent they make their money when things are going wrong… one hopes!!